CHRYSLER IS BUYING AMERICAN MOTORS

CHRYSLER IS BUYING AMERICAN MOTORS; COST IS $1.5 BILLION

By JOHN HOLUSHA, Special to the New York Times

Published: March 10, 1987

DETROIT, March 9—
The Chrysler Corporation said today that it had agreed to acquire the American Motors Corporation for about $1.5 billion.

American Motors is a tiny company by auto industry standards, and it has been struggling to survive. But its outlook is improving and it could increase Chrysler's share of the market by a few important percentage points.

Lee A. Iacocca, Chrysler's chairman, said in a statement, ''It'll strengthen both of us in what's already become a tough market.'' Modern Plant Involved

The transaction would give Chrysler the highly profitable Jeep vehicles to broaden its model lineup, as well as A.M.C's modern assembly plant in Bramalea, Ontario, and 1,400 additional dealers.

Chrysler announced that it had agreed to buy the 46 percent of American Motors held by Renault, the French Government-owned car company that bought into American Motors eight years ago. With that, automotive analysts said, the takeover is assured. Chrysler will also offer to buy up the remaining shares from the public. Little of the payment may be in cash.

''It's a great deal for all three companies involved,'' said Jack V. Kirnan, an analyst with the Wall Street firm of Kidder, Peabody & Company. ''Jeep is a major prize.'' Remarkable Comeback

The merger represents a milestone in the remarkable comeback by Chrysler, which was saved from bankruptcy with the assistance of Government-backed loans in the late 1970's.

Since then, improved sales of a succession of new car models, including the popular mini-van, returned the company to prosperity and allowed it to repay the last of the Government-backed loans in 1983. Last year Chrysler earned $1.4 billion, while American Motors lost $91.3 million.

With the merger of the two smallest of the four American-based auto manufacturers, Chrysler demonstrates a new confidence in reaching for a bigger presence in the car market. It also gets a continuing relationship with Renault, one of Europe's largest auto companies.

Based on last year's results, the acquisition would raise Chrysler's share of the combined car and light-truck market in this country to 13.4 percent from 11.7 percent, although leaving it well behind the Ford Motor Company, which had 21.2 percent, and the General Motors Corporation at 38.5 percent. But Chrysler's share could be somewhat bigger than 13.4 percent if the expected improvement at American Motors is realized.

In the financial community, analysts said that Chrysler would be gaining important assets, such as Jeep and the dealer network, at a modest price.

Jeeps fetch as much at $20,000 for the top models, providing high profit margins.

Jeep alone is worth more than $850 million, according to Ann C. Knight, an analyst with Paine Webber, the brokerage house. American Motors' new Ontario plant, which incorporates modern technology, is worth $650 million, she said.

Other analysts have estimated that it would cost Chrysler about $1.2 billion to design competitors for Jeep and prepare a plant to produce the vehicles, which would still lack the well-known Jeep brand name.

The announcement comes after months of conjecture that Chrysler, which is assembling one of its car lines at A.M.C.'s Kenosha, Wis., plant, would make an offer for the company, which endured heavy losses for years, causing a drain on Renault.

Chrysler and American Motors have a long history of cooperation, and the ties between the two have grown closer in recent years. All Jeeps and other A.M.C. four-wheel-drive vehicles use gearboxes made by a Chrysler division, and last year the two companies agreed to assemble some of Chrysler's older rear-wheel-drive cars in the Kenosha plant.

Renault, with financial problems of its own, had indicated a willingness in recent months to discuss a sale of A.M.C., but such talks were apparently disrupted by the assassination of Georges Besse, the head of Renault, in Paris last November.

Bennett E. Bidwell, vice chairman of Chrysler, said today that ''any opportunity we had to do anything came to a grinding halt when Georges Besse was murdered.'' Mr. Besse's replacement, Raymond Levy, only recently resumed the discussions, Mr. Bidwell said. ''The deal came together this weekend, and we signed it this morning,'' he added.

The United Automobile Workers called the merger ''a good match that potentially points the way to a more secure future for workers at both companies.'' The union, which had been in negotiations over work rule concessions at the Kenosha plant, said it would break off the talks for 30 days to allow the situation to clarify.

Chrysler will give Renault $200 million in 10-year notes bearing 8 percent interest and other payments ranging from zero to $350 million based on A.M.C.'s future performance. In addition, Chrysler will assume $767 million of A.M.C.'s debt and will pay $35 million for a half interest in the American Motors Financial Corporation.

Chrysler will also offer Chrysler stock valued at $4 for each American Motors share in public hands. Chrysler officials estimated that would be worth $522 million.